Airline flight networks, cycle times, and profitability: 2004–2006

This research investigates the relationships between airline flight networks, aircraft cycle times, and carrier profitability for ten large US domestic airlines. We find that direct point-to-point flight networks and short cycle times are operational factors that airlines should exploit to improve profitability. These findings are based on the analysis of 11.9 million flight records from 2004 through 2006. The results contradict earlier research validating performance advantages of hub-and-spoke flight networks. Today, the advantages of passenger consolidation at hub airports are lost to lower aircraft utilization and productivity problems created by the extended cycle times at hubs. We also find that airline operating profit can be increased by improving the efficiency of the aircraft turnaround process and decreasing aircraft fleet complexity. This research also provides an estimate of the marginal opportunity cost of ground time. A 1-min reduction in aircraft fleet ground time increases the average sized carriers’ operating income by $12 to $18 million.     

The international drivers of domestic airline mergers in twenty nations: integrating industrial organization and international business

The domestic airline merger phenomenon of the late 1980s and early 1990s sparked a great deal of Industrial Organization (IO) literature; yet, that literature neglected non‐US domestic mergers and potential for international competitive gains. Using an International Business perspective to complement an IO analysis, I argue that factoring international competitive incentives helps explain domestic airline merger activity. A Cournot model of airline competition illustrates that domestic mergers, via enhanced domestic networks and reduced domestic competition, generate international competitive gains. Further, empirical tests—using a structural equations approach on panel data covering interhyphen‐national city‐pair market segments—support domestic mergers improving international competitiveness. Copyright © 2006 John Wiley & Sons, Ltd.     

Infinite-dimensional VARs and factor models

This paper proposes a novel approach for dealing with the ‘curse of dimensionality’ in the case of infinite-dimensional vector autoregressive (IVAR) models. It is assumed that each unit or variable in the IVAR is related to a small number of neighbors and a large number of non-neighbors. The neighborhood effects are fixed and do not change with the number of units (N), but the coefficients of non-neighboring units are restricted to vanish in the limit as N tends to infinity. Problems of estimation and inference in a stationary IVAR model with an unknown number of unobserved common factors are investigated. A cross-section augmented least-squares (CALS) estimator is proposed and its asymptotic distribution is derived. Satisfactory small-sample properties are documented by Monte Carlo experiments. An empirical illustration shows the statistical significance of dynamic spillover effects in modeling of US real house prices across the neighboring states.     

The factors determining the profitability of international airlines: Some econometric results

The deregulation of the US domestic airline market in 1978 and its apparent relative success continues to attract a great deal of interest among US and other economists. This uniquely US experience has clearly shown that factors such as market contestability, the multiple output nature of costs, the structure of networks and airport presence play a crucial role in the survival and, ultimately, profitability of relatively free and unregulated airlines. However, most international airlines still operate in a heavily regulated environment. While the tendency is clearly toward liberalization, the question remains: What can these airlines do to improve their profitability within this framework? Our results indicate that profitable airlines have high passenger load factors, a relatively low proportion of capacity related costs, younger and more efficient fleets and supplement their passenger loads with freight.     

Knowledge spillovers in US patents: A dynamic patent intensity model with secret common innovation factors

During the past two decades, innovations protected by patents have played a key role in business strategies. This fact enhanced studies of the determinants of patents and the impact of patents on innovation and competitive advantage. Sustaining competitive advantages is as important as creating them. Patents help sustaining competitive advantages by increasing the production cost of competitors, by signaling a better quality of products and by serving as barriers to entry. If patents are rewards for innovation, more R&D should be reflected in more patent applications but this is not the end of the story. There is empirical evidence showing that patents through time are becoming easier to get and more valuable to the firm due to increasing damage awards from infringers. These facts question the constant and static nature of the relationship between R&D and patents. Furthermore, innovation creates important knowledge spillovers due to its imperfect appropriability. Our paper investigates these dynamic effects using US patent data from 1979 to 2000 with alternative model specifications for patent counts. We introduce a general dynamic count panel data model with dynamic observable and unobservable spillovers, which encompasses previous models, is able to control for the endogeneity of R&D and therefore can be consistently estimated by maximum likelihood. Apart from allowing for firm specific fixed and random effects, we introduce a common unobserved component, or secret stock of knowledge, that affects differently the propensity to patent of each firm across sectors due to their different absorptive capacity.     

Airline consolidation and the distribution of traffic between primary and secondary hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta's network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta's primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York's JFK airport.     

Excess capacity: a permanent characteristic of US airlines?

This paper examines the permanence of excess capacity in the US airline industry. To avoid the problems with the standard engineering measure of capacity utilization, load factor, we define and measure capacity as an economic concept. Two measures of economic capacity utilization are then computed—one, a demand-based measure and the other an output-based measure of capacity utilization. Both measures share little in common with the standard engineering measure (load factor) and reveal some interesting attributes of airline travel demand. This paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulation. Specifically, it is found that deregulation with the concomitant rationalization of route structures enabled airlines to move closer to their optimal levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered. © 1998 John Wiley & Sons, Ltd.     

Interference among conflicting institutions and technical-economic conditions: the adoption of the Assessment Center in French,German, Italian,UK, and US multinational firms

We analyze the adoption of the Assessment Center (AC), one of the most complex human resource management techniques, in 161 British, French, German, Italian and US multinational firms both at the headquarters and in their Italian subsidiaries. Combining both quantitative analysis and qualitative accounts, we investigate how different and partially contradictory institutional influences stemming from national business systems and professions, global corporate networks and professions, and different technical-economic conditions affect the adoption of the AC. Our study shows that AC-diffusion is similar at headquarters level in all national contexts, testifying to the paramount importance of transnational institutions of Anglo-American origin for MNCs of any nationality, despite great local variation in the degree of institutionalization of the AC, which ranges from fully-fledged support in culture and the professions as, for example, in Germany, the UK and the USA, to weak or negative backing as in France and Italy. However, the study also reveals how different characteristics of the corporate field of firms with headquarters in different countries, as well as organizational size and labor market conditions, still explain adoption of the AC in their subsidiaries in Italy.     

Entry mode choices in the international new ventures context. A study from different theoretical perspectives

Few studies have investigated the factors that enhance entry mode choice in the context of international new ventures (INVs). In this paper, we hypothesize that the characteristics of INVs’ products or services can explain their preference for equity entry modes. We also hypothesize that the inter-firm networks in which INVs are embedded play a deciding role in their choice of non-equity entry modes. When INVs are in inter-firm networks in which activities are developed to manage them, non-equity entry modes are preferred. We have adopted an effectuation approach to study the influence of different inter-firm network management activities on entry mode choice. In short, we have studied the effect of developing inter-firm network knowledge exchange, coordination, adaptation, conflict resolution and resource sharing management activities. In this paper we attempt to contribute to international entrepreneurship studies by reconciling the most widely accepted approaches to entry mode choice (Transactional Cost Economics, Organizational Capabilities-based and Network perspective) and international new ventures. Our findings show that the technological complexity of INVs’ products/services explain their preference for equity entry modes. Additionally, the development of network management activities among the networked firms determines the INVs’ preference for non-equity entry modes. Our results draw a decision model that differs from the ones derived from previous perspectives, which highlight the role of different characteristics of international new ventures.     

The Construction of a Low‐Cost Airline Network – Facing Competition and Exploring New Markets

The paper investigates the construction of a low‐cost airline network by analyzing JetBlue Airways' entry decisions into non‐stop domestic US airport‐pair markets. Adopting duration models, we find that JetBlue consistently avoided concentrated airports and targeted concentrated routes; network economies also affected entry positively. For non‐stop entry into routes that have not been served directly before, our analysis reveals that the carrier focused on thicker routes and secondary airports. Non‐stop entry into existing non‐stop markets, however, shows that JetBlue concentrated on longer‐haul markets and avoided routes already operated by either other low‐cost carriers or network carriers under bankruptcy protection. Copyright © 2012 John Wiley & Sons, Ltd.     

Occupational Labour Demand and the Sources of Non‐neutral Technical Change*

This article introduces a two‐step empirical approach for examining both the nature and sources of non‐neutral technical change across multiple occupations. First, conventional labour‐demand parameter estimates and unbiased tests for neutrality are obtained in the context of a flexible cost system. The resulting input‐specific indices of technical change, unconstrained with respect to time path, facilitate subsequent evaluation of proposed sources. In our application to employment decisions of airline firms, we find labour‐saving technical change that is non‐neutral across occupations. We also document occupation‐specific responses to aircraft technology adoption, route system developments and an unprecedented range of technical change elements.

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Trade networks and economic fluctuations in Asian countries

The paper presents a new methodology, based on tensor decomposition, to map dynamic trade networks and to assess its strength in forecasting economic fluctuations at different periods of time in Asia. Using the monthly merchandise import and export data across 33 Asian economies, together with the US, EU and UK, we detect the community structure of the evolving network and we identify clusters and central nodes inside each of them. Our findings show that data are well represented by two communities, in which People's Republic of China and Japan play the major role. We then analyze the synchronisation between GDP growth and trade. Furthermore we apply our model to the prediction of economic fluctuations. Our findings show that the model leads to an increase in predictive accuracy, as higher order interactions between countries are taken into account.     

Aligning adoption messages with audiences' priorities: A mixed-methods study of the diffusion of enterprise architecture among the US state governments

Prior studies on the diffusion of complex Information Systems (IS) innovations have leaned on the rhetoric of persuasion perspective to formulate rhetorical strategies that can persuade adopters to engage in adoption behaviors. Yet, most of them ignore the shifting priorities and changing identity of the audience. To address this gap, we extend the perspective by examining how innovators need to evolve the adoption message of an innovation by aligning it with the audience's diverse and shifting priorities (and related identities). We trace rhetorical changes that the National Association of State CIOs (NASCIO) introduced to promote the diffusion of enterprise architecture (EA) between 2000 and 2012 among the 50 US states. We conduct a mixed methods analysis: first we qualitatively discern changes in the content of the rhetoric (message change); then we use a latent semantic analysis to measure the frame resonance between NASCIO's shifting rhetoric and the audience's changing priorities (alignment with audience priorities). Our findings highlight the importance of: 1) frame ambiguity that renders a complex IS innovation appealing to varied audiences over its diffusion trajectory; and 2) listening to the community members' priorities and aligning the adoption message with their dominant beliefs. Our analysis posits the rhetoric of identification as a complementary lens to account for the co-evolution of shared priorities and identity alignments between innovators and their audiences.     

Fibre tracks: explaining investment in fibre optic backbones

This paper examines the US portion of the global communications network known as the Internet. The stages in the Internet's evolution, telecommunications deregulation, and a rush by new competitors to new market opportunities associated with the Internet combined to prompt a flurry of investment in new fibre-optic networks. Frameworks to explain new networks built upon, and added to, existing telecommunications networks include network economies and the opportunity-rich paths located between the large markets on the east and west coasts of the country and a capital-driven set of new and old network suppliers. The paper then reviews the small but growing body of research on the geographic structure of the Internet. The empirical section of the paper focuses on analyses of the variation among urban areas both in bandwidth on interurban Internet backbone networks and in the number of web design firms in the USA. Bandwidth investment was attracted not only to cities with larger populations but also to cities with ‘knowledge economies’, indicated by doctoral degree-granting institutions and economic dynamism. The paper concludes with remarks about future research priorities.     

Demand and supply estimation biases due to omission of durability

We build a dynamic equilibrium model of a durable goods oligopoly with a competitive secondary market to evaluate the bias in estimating the structural parameters of demand and supply when durability is omitted. We simulate data from our dynamic model and use them to estimate the model’s static counterpart. We find that the static estimate of the elasticity of demand is an overestimate of the true elasticity and that the static estimate of the markup is an underestimate. Our results provide a benchmark on the magnitude and sign of the bias when static models are used for economic inference.     

Nowcasting GDP with a pool of factor models and a fast estimation algorithm

We propose a novel mixed-frequency dynamic factor model with time-varying parameters and stochastic volatility for macroeconomic nowcasting and develop a fast estimation algorithm. This enables us to generate forecast densities based on a large space of factor models. We apply our framework to nowcast US GDP growth in real time. Our results reveal that stochastic volatility seems to improve the accuracy of point forecasts the most, compared to the constant-parameter factor model. These gains are most prominent during unstable periods such as the Covid-19 pandemic. Finally, we highlight indicators driving the US GDP growth forecasts and associated downside risks in real time.     

Is the Quarter of Birth Endogenous? New Evidence from Taiwan,the US,and Indonesia

Recent evidence based on US data suggests that the quarter or month of birth (QOB or MOB) may be endogenous, since family characteristics can explain up to 50% of the effects of QOB on the education outcomes and earnings of adult males. In this study, based on a sample of one million Taiwanese siblings, we examine university admission at age 18 as our outcome variable and find that at school entry, the oldest (September born) children are 31–38% more likely to be admitted into university at age 18 than the youngest (August born) children, indicating strong seasonality in university admission. The inclusion of controls for family background is found to explain only a small portion of these effects, particularly for males. Given that such results are at odds with the recent US evidence, we revisit the US Census data and find that when racial differences are properly controlled for in the estimation, even a rich set of family characteristics is capable of explaining only a minor proportion of the QOB effects. Furthermore, using data from the US and Indonesia, we find that seasonal temperature variation is unlikely to be an important contributor to the US‐Taiwan disparity. Our findings imply that the validity of using QOB or MOB as an instrumental variable may be dependent on the population being studied and the sample selected.     

House price synchronization across the US states: The role of structural oil shocks

This paper analyzes the impact of disentangled oil shocks on the synchronization in housing price movements across all the US states plus DC. Using a Bayesian dynamic factor model, the house price movements are decomposed into national, regional, and state-specific factors. We then study the impact of oil-specific supply and demand, inventory accumulation, and global demand shocks on the national factor using linear and nonlinear local projection methods. The impulse response analyses suggest that oil-specific supply and consumption demand shocks are most important in driving the national factor. Moreover, as observed from the regime-specific local projection model, these two shocks are found to have a relatively stronger impact in a bearish rather than a bullish national housing market. Our results have important policy implications.     

Bounds for best response functions in binary games

This paper studies the identification of best response functions in binary games without making strong parametric assumptions about the payoffs. The best response function gives the utility maximizing response to a decision of the other players. This is analogous to the response function in the treatment-response literature, taking the decision of the other players as the treatment, except that the best response function has additional structure implied by the associated utility maximization problem. Further, the relationship between the data and the best response function is not the same as the relationship between the data and the response function in the treatment-response literature. We focus especially on the case of a complete information entry game with two firms. We also discuss the case of an entry game with many firms, non-entry games, and incomplete information. Our analysis of the entry game is based on the observation of realized entry decisions, which we then link to the best response functions under various assumptions including those concerning the level of rationality of the firms, including the assumption of Nash equilibrium play, the symmetry of the payoffs between firms, and whether mixed strategies are admitted.     

Identification robust confidence set methods for inference on parameter ratios with application to discrete choice models

We study the problem of building confidence sets for ratios of parameters, from an identification robust perspective. In particular, we address the simultaneous confidence set estimation of a finite number of ratios. Results apply to a wide class of models suitable for estimation by consistent asymptotically normal procedures. Conventional methods (e.g. the delta method) derived by excluding the parameter discontinuity regions entailed by the ratio functions and which typically yield bounded confidence limits, break down even if the sample size is large ( Dufour, 1997). One solution to this problem, which we take in this paper, is to use variants of  Fieller’s ( 1940, 1954) method. By inverting a joint test that does not require identifying the ratios, Fieller-based confidence regions are formed for the full set of ratios. Simultaneous confidence sets for individual ratios are then derived by applying projection techniques, which allow for possibly unbounded outcomes. In this paper, we provide simple explicit closed-form analytical solutions for projection-based simultaneous confidence sets, in the case of linear transformations of ratios. Our solution further provides a formal proof for the expressions in Zerbe et al. (1982) pertaining to individual ratios. We apply the geometry of quadrics as introduced by  and , in a different although related context. The confidence sets so obtained are exact if the inverted test statistic admits a tractable exact distribution, for instance in the normal linear regression context. The proposed procedures are applied and assessed via illustrative Monte Carlo and empirical examples, with a focus on discrete choice models estimated by exact or simulation-based maximum likelihood. Our results underscore the superiority of Fieller-based methods.